WeWork Faces Class Action Suit Over Failed IPO
June 5, 2020
Investors filed a class action lawsuit this week against co-working giant WeWork over its failed public offering. The investors are claiming that WeWork executives minimized the company’s losses and overhyped its business plan in order to sell hundreds of millions of dollars in stock. Those shares were sold to investors for two-and-a-half years before the September 2019 decision to withdraw the IPO.
“WeWork was engaged in profligate spending in a reckless bid for growth at all costs—not in a manner designed to sustainably grow its business, but rather to induce capital raises from investors at even higher valuations,” the complaint alleges.
WeWork has not commented publicly on the lawsuit.
WeWork, valued at $47 billion when it applied for an IPO in August 2019, was a fast-growing tech startup that intended to change business office models with its co-working spaces.
The lawsuit accuses the company of hyping an unprofitable business model. “Its growth was not sustainable without the continuous influx of billions of dollars of investor capital,” the lawsuit alleges.
The complaint was filed in San Francisco’s federal court on Wednesday.
WeWork’s founder, Adam Neumann, recently sued SoftBank for pulling out of a deal to purchase $3 billion worth of WeWork shares from investors. The deal was to close on April 1. SoftBank was an early investor in WeWork.
In that lawsuit, WeWork’s founder Adam Neumann said the company “put his trust in [SoftBank and the Vision Fund] to be stewards of WeWork, which he—and thousands of others—had worked so hard to build.”
“WeWork, SoftBank Sued for Investor Fraud Over Failed IPO,” Bloomberg (June 3, 2020) and “Investors Sue WeWork Over Botched IPO,” Commercial Observer (June 4, 2020)
Updated: July 02, 2020